Q1 2022 iMedia Brands Inc Earnings Call

Yeah.

Greetings and welcome to the I'm media brands first quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Tom So Lucky Senior Vice President and Chief Financial Officer for media brands.

You may begin.

Good morning, everyone and thank you for joining we issued our Q1 earnings release earlier. This morning. If you do not have a copy you may access it through the news section of our IR website at media brands Dotcom. This release is also an exhibit to the form 8-K filed this morning a webcast.

A replay of the call will be available via the link provided in today's press release as well as on the IR section of our website. Some of these statements made during this call are considered forward looking and are subject to significant risks and uncertainties. These statements reflect our expectations about future operating and financial performance and speak only.

As of today's date, we undertake no obligation to update or revise these forward looking statements. We believe the expectations reflected in our forward looking statements are reasonable, but give no assurance such expectations or any of our forward looking statements will prove to be correct for additional information please refer to the safe.

Harbor statement in today's earnings release, and our SEC filings. Finally, we will make references to non-GAAP measures on this call such as adjusted EBITDA. Please refer to our earnings release for further information about these measures, including reconciliations to the most comparable GAAP measures now I would like to turn the call over to the CEO .

<unk> media brands, Tim Peterman, Tim.

Thank you Tom and good morning, everyone. We are on plan and off to a good start this year within our media Commerce services segment, our digital advertising services flagship business immediate digital services or I M. D. S performed better than we expected and remains on track to grow its 2022 revenue by at least 50% compared to 2000.

'twenty one more importantly, we continue to see progress with attracting new clients and renewing existing clients for our digital services. In fact, a few weeks ago, we signed a new multiyear renewal agreement with lumen technologies as many of you know lumen is a 19 billion plus leading U S based Internet service provider.

Regarding network edge cloud security communication and collaboration solutions that support businesses and consumers with one of the fastest and most secure platforms for next generation apps and data I M. D. S. As value added solutions will be providing lumen with a fully managed web portal containing highly engaging content.

Support and communication services E Commerce shopping experiences and digital advertising solutions I M. D. S will aid lumen and retaining scaling and monetizing their users through innovative content and advertising solutions on desktop and mobile web platforms within our consumer brand segment our omnichannel.

Oh flagship brand Christopher and banks also performed better than expected and remains on track to grow its revenues by at least 50% in 2022 compared to 2021. In addition, as part of our consumer brand operating segment I'd like to report that our development plans to launch our new 123 television travel website here in the U S.

<unk> continues to progress on track with an estimated launch date in Q3 2022 within our entertainment segment, our flagship networks shop HQ in 123 television performed a bit below expectations in the first quarter related to what we believe our ongoing consumer concerns about the economy, all those highlights being said.

Third I would like to note that our ability to deliver consolidated company growth in times like these centers on our unique business strategy designed to grow four separate revenue streams, namely T Commerce e-commerce advertising and business to business services each focused on the same boomer customer.

Mcgrath <unk>, which in turn enables us to cross promote and share data. These four revenue streams and monetize our delivery of compelling interactive entertainment to consumers on all engagement platforms, including linear TV over the top television online social catalog and physical stores in short.

This recent evolution of our business model to capture multiple revenue streams gives us an advantage we have not had historically.

We now have the potential to traverse headwinds that may arise in one revenue stream like logistic cost in T commerce and ecommerce, while we capture opportunities that may arise and another revenue stream like first party data and digital advertising.

I would like to now talk a bit about our balance sheet and provide some additional insight regarding our 2022 and 2023 debt service and working capital plan and how our recent equity raise fit within this plan. Our strategy is designed to reduce our interest expense and reduce our net senior debt leverage ratio over time.

<unk> in a methodical fashion.

For 2022, our plan centers on increasing our levels of cash generated from inventory optimization profitability growth in our just completed equity raise more.

More specifically for fiscal years, 2022, and 2023, we're targeting to reduce our senior debt by 10% to 15% each year, which will reduce our net senior debt leverage ratio from three plus as of Q1 to about 2.5 at the end of 2022 and then too.

About a 2.0 by the end of 2023.

Specifically for fiscal 2022. This means a debt reduction of approximately $20 million to $30 million by the end of the year generated by the following number one increased profitability at shop HQ in Q3, and Q4, driven by an approximate $20 million reduction in shop HQ operating expenses.

Primarily driven by the reduction in negotiated TV distribution expense and the reduction of other operating expenses number two reduced inventory levels at shop, HQ123, T V and Christopher banks in Q2, Q3 and Q4 this year in.

In 2021, we intentionally increased our inventory level by $23 million year over year to ensure logistic delays did not impact our ability to deliver to our customers and also to get ahead of price increases taken by our suppliers in 2022, our plan is to bring that inventory level back down by about.

$12 million to $15 million by the end of the fiscal year.

Number three the equity raise we just completed will provide about $22 million in additional cash to strengthen our working capital and reduce our debt four during may we renegotiated our short term seller note payable from $14 5 million to $7 million, which reduces our 2022 debt service requirement the <unk>.

$7.5 million will be payable in Q1 2023.

I would like to also note that in 2021, we incurred roughly $9 million in one time expenses related to our 2021 financings and acquisitions, which we do not expect to occur again in 2022 for fiscal 2023. Our plan is to fund our debt reduction with the additional cash generated from chop each skus.

Land increased profitability and normal working capital management regarding the timing of our recently completed equity raise this was a judgment call. We made based on our belief that the global and U S economy will not improve and may even worsen throughout the remainder of 2022.

We see all of the same indicators you do.

The S&P 500 is performing at its lowest year to date levels. Since 1939 U S. Monetary policy continues to drive significant inflation and rising mortgage rates Russia's invasion of Ukraine, and the associated economic sanctions continue to create macroeconomic global uncertainty China's increased COVID-19 related lockdowns.

Continue to exacerbate already challenging global supply chain issues. The University of Michigan's may consumer sentiment report indicated the U S. Consumers assessment of their current financial situation relative to a year ago is at its lowest reading since 2013.

And consumers assessment of the buying conditions for durables reached its lowest level since 1978.

In addition, we believe we will likely see additional market volatility this fall driven by the midterm U S elections.

We recognize dilution is always a sensitive subject and one we do not take lightly in this instance, we believe the achievement of our 2022 and 2023 goals explained in more detail today will accelerate our per share growth and more than absorbed the short term dilutive effect of this race.

Before I turn it over to Tom who will provide more detail regarding our Q1 performance and outlook for the remainder of 2022 I would like to provide a brief introduction of Tom.

I met Tom in 2018, when I hired him as my CFO for a direct to consumer business I operated in Chicago I know them.

Trust his judgment and I appreciate his pace. He has already relocated himself and his family here to Minneapolis from Chicago. He has already added new finance and accounting talent to our team and I am confident he will help us tackle the complexities of a rapidly growing company and help us capture the new opportunities, we see for the future Tom.

Welcome to the jungle. Thanks.

Thanks, Tim and good morning, everyone I would like to start with a few words about why I relocated here and why I'm excited joined this journey at <unk> media brands first I will say that I loved HIMSS mantra that accompanies success requires three ingredients and entrepreneurial culture operating discipline and grit I've seen firsthand how this mantra bill.

<unk> shareholder value I have also seen how companies fail because they were missing one or all of these.

Second the business strategy here is compelling I like how we can cross promote and share data to drive four separate revenue streams focused on the same boomer demographic too.

To me, it's exciting to join an organization at the beginning of what I believe is a meaningful run there are many things that a CFO focuses on each day, but I want to share with investors today, what my immediate top two priorities are.

One help ensure the operational disciplines are in place to deliver our targets to our shareholders to our vendors to our employees into our lenders both near term and long term to ensure we continually strengthen our balance sheet through proactive treasury management, including working capital debt service capital.

Patient and expense optimization regarding the Q1 financial results as Tim mentioned, we are pleased to report that we're off to a good start I'd like to hit a few highlights that Tim did not cover.

Gross margin is 39, 7%, a 96 basis point decrease versus the prior year. The rate is impacted by sales mix, one two or three television and I M. D. S have historically lower gross margin rates than shop HQ for 123 television. We are taking actions to improve the margin rate increase a S. P include.

<unk> testing the strongest shop, HQ brands and products on 123 T V.

The 12 month customer file increased 48%, which was driven by solid performances at shop HQ, great performance at Christopher <unk> banks, and the addition of 123 Tvs customer counts regarding our outlook for the second quarter 'twenty 'twenty. Two we anticipate reporting net sales of approximately $158 million, which is approximately <unk>.

40% growth over the same prior year period, we anticipate reporting adjusted EBITDA of approximately $10 million, which is approximately a 12% increase over the same prior year period for the full year 2022, we reiterate our previously reported 2022 guidance we anticipate.

Late reporting revenue of approximately $675 million to $725 million adjusted EBITDA of approximately $50 million to $60 million and we anticipate reporting positive quarterly earnings per share beginning in the back half of 2022 specifically in the fourth quarter.

As a reminder, from a tax perspective, we have approximately 389 million in federal Nols that are available to us to offset future taxable income.

Thank you for your time this morning, Tim and I are now pleased to take any questions.

Thank you at this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question guys.

You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys are.

Our first question comes from the line of Tom Forte with D. A Davidson. Please proceed with your question.

Great. So I have one question and one follow up so the first question I have is can.

Can you and three short snappy bullets explain a why you're retaining your full year guidance given the laundry list of challenges you've highlighted that have emerged. After you gave your original outlook, including the economic challenges inflation, Ukraine, Russia conflict et cetera. Thanks.

Thanks, Tom certainly the.

As you think about the challenges that I talked about in all of them, we talked about in Q4, as well and that our capital markets day.

The resiliency of our approach with these four different revenue streams.

Focused on the same consumer demographic allows us to have a little bit more or less density. When there is a challenge in one particular area versus the other so as you think about our Q1, certainly I M. D. S over performed our advertising digital advertising business, Christopher <unk> banks over performed against our expectations, yet one to three and choppy.

Later in the quarter starting to see pressure just from consumer distraction. So we we already thought about what might be surprises in 2000.

22 related to all these factors when we put out our initial guidance.

Last Christmas season, and then reiterated it again so.

$6 75 to 725, we still feel good about we still feel good about the margins and the EBITDA that we put out there.

We think about all of these things before we put it out to where we anticipate some surprises. We also have some surprises on the other side of that meaning there are businesses like or one country travel that we're launching later in the fall that arent even in our forecast. So those are also things that move in the other direction as we seek to again.

You'll meet expectations and achieve our guidance.

That was my follow up and I'm pretty sure that was I tried to be as brief as I sit there.

No I appreciate it so for my follow up question you talked about your current financial structure and some of the targets you're aiming for how can you give your current thoughts on the construction of your portfolio and where you are today on considering additional strategic M&A.

Yeah.

Great question, Tom So think about it this way as we talked about before we have forecast.

100, <unk> shop, HQ Christopher banks.

Those are the four catalysts driving our growth that make us bullish about achieving the targets.

Laid out on our capital markets day.

Our balance sheet perspective, we've talked about.

Need for debt reduction in that $20 million to $30 million range, we've been talking about that for 456 months and so I wanted to make sure I spent the time on this call laying out exactly what that meant to give people.

<unk>.

More understanding of why we did our equity raise raised today and why it's the only equity equity raise that we are anticipating because we don't need to do any more M&A in that regard certainly not in 2022 or 2023, what we need to do is exactly how we described it execute digest.

The assets that we have strengthened our balance sheet and most importantly deliver positive EPS in Q4, which hasnt been done in 20 plus years, although it was done in 2017.

Hasn't been done since then so very important that we achieve those things, which we think will only accelerate our per share growth. We don't see any type of M&A activity driven by equity.

Right now, it's all about execution.

Thanks for taking my question Tim.

Thanks, Tom.

Okay.

Thank you. Our next question comes from the line of Mark Argento with Lake Street Capital markets. Please proceed with your question.

Hey, John .

I'm just.

Couple of quick ones.

Obviously inflation really beaten up on mature so retail guys I'm, assuming your pricing model allows you to be a little more dynamic in terms of pricing.

On the margin.

Could you talk a little bit about that and then just also I know you mentioned I believe that.

You were able to renegotiate the seller note and I just wanted to better understand if that was directly related to the performance of one two or three.

<unk>.

Thanks Mark.

The retail environment and even competitors in our space have been reporting earnings that are certainly headwinds from a capital markets perspective than what folks think we'll continue to do but in our case on our journey.

Our gross margins have been.

Back in 2020 with a discipline around minimum floors I am is and just a real process to how we do it. That's why we were able to deliver gross margins that we did and the revenue that we that we talked about and in providing this guidance. Other other types of businesses have other pressures.

Right, so a lot of times.

Folks are not nimble enough to adjust their receipts quickly enough. So what they have to do is you have to burn through the inventory at a much lower margin in order to make room for the new inventory ours as our models a little bit more nimble we have a few long lead businesses, but a lot of our businesses are shortly beauty jewelry watches they are not as dynamic.

<unk> cost as much as nine months out where you are committed to that flexibility on our merchandising mix also gives us the ability to maintain margin better than some of the retailers that you see out there in terms of the the.

<unk> of the cell or no no. It doesn't have anything to do with 123 Tvs performance we have the.

The seller as well is that as we're very pleased with the direction. We're going this just has to do with just normal blocking and tackling we've been talking to them about it for quite some time and finally came to terms with what we're gonna do I think that what it speaks to really the flexibility of the partners that we have from a lender perspective from a vendor perspective, we.

He built strong relationships here because we're all in this journey together and everybody is focused and aligned on similar goals. So it's very easy to move and pivot as as the as the market dictates.

Thank you.

Thanks Mark.

Thank you, ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Our next question comes from the line of Alex Furman with Craig Hallum Capital Group. Please proceed with your question.

Great. Thanks, very much for taking my question I was wondering if you can tell us a little bit about the pipeline of new brands that you have for the back half of the year heading into the holiday season, you guys have done a great job launching new brands over the last couple of years, you know with everything going on with the supply chain.

<unk> and just consumer spending you know wondering if if if you continue to have strong availability of of new brands and if there are any particular category that that it looks like you're gonna be highlighting for the holidays. This year.

Sure thing Alex Thanks for the question.

And when we talked about this you know several years ago when we were.

Launching 100, plus brand every you know every.

Every year in order to put our customer growth back on the positive order to drive rents in order to drive our programming calendar. The key difference of how we did it since 2019 certainly in 2020 versus our history was is that we worked with our existing vendors to develop white space that we see on our calendar and.

As a result, we became more important to our existing vendors and we were able to launch more new brands as a result that fit the customer need.

Big change from where we used to do it where we were just trying to capture an outside third party brand and as you saw over the years shopping she became a testing ground, where they would trade up and try to move to a bigger network, where we have not actually lost any of our key brands and these last four years three years and we've actually got.

Some back that have left so because they want to be part of an organization, where we believe every vendor we bring in is our priority to grow their brand to grow their product mix and to brainstorm about what other capabilities. They have and what are the brand can they create that we have white space for so when you think about this fall we have all.

[noise] sorts of brands in the core categories that we are you know.

What we think we're best at which is the wearable categories, but what we're not going to do and we haven't done since is launch new brands just to launch new brands.

I call it the one and done or that she went out which is often a historical pattern, we did to where we were.

Wouldn't give something that enough time to mature so we're being very thoughtful about this fall when we bring our brand on we want to make sure we put enough wood behind the arrow to make sure. It has a realistic chance to evolve into a reoccurring business and so that's our big focus for this fall you'll hear more from us on these new brands as they are.

I Havent really provided any of that color, yet, but we will be in the coming months.

Okay. Thanks, that's really helpful. And then if I could ask one on on Christopher and banks. It seems like you know that that has been a really strong performer for you. How do you think about the next couple of years I mean, obviously really strong growth for that brand. This year I mean is there an opportunity to kind of rebuild.

All the Christopher <unk> banks back closer to where.

Sales volume historically, but you know with more of a T V President and then brick and mortar I mean, there's.

Just wondering how big you think this brand can can get back to over the next few years.

Sure thing Alex It is you know one of our four main catalysts so let's.

Set the table.

Christopher <unk> banks was a $300 million retailer that picked over at the beginning of last year, primarily because of its business model right and its business model is driven by 350, plus retail stores at brick and mortar experience now.

Our business model, it's not something we believe in our business model is driven by TV, whether that's TV linear TV OTT TV, but that experience of getting in your home every day is what we believe so it's not that we don't believe in physical stores. We do it's just the driver is this TV video this.

Experienced personal experience that you have so think about that.

And then let's talk about the tale of the tape, which is last year. We brought we relaunched with that strategy in March April from a standing stop and produced $40 million and revenues last year of profitable revenue.

Exciting captured back a lot of our existing customers and to complement that TV, we did actually reopened five.

Bank stores last fall you had coon Rapids here in Minnesota, Fort Wayne, Indiana, Greensburg, Pennsylvania branch in Missouri in Canton, Ohio, All of those were strong performing stores that we've reopened to make sure that we have you know.

That complement to our business model.

But remember the reason Christopher bags reason, we acquired it and the reason we believe in it. It has a very strong reason for being everything from the sizing to its proprietary fabrics and its core customer is the same as our core customer. So we can use all of our media assets to cross promote with a shared data to make sure. We're having is high.

Conversion as we can so as you look at 2022, we talked about it as growing it by 50%.

You talked about $60 million in 2022, and then we talked about how it grow from there. If you think about how our ambitions are on what we have in our guidance. Yeah. We have a you know in our guidance we have a growing from the <unk>.

40 to 60 range and that includes <unk>.

Possibly opening some retail stores in the fall again, but not not a lot and it's not a requirement, but we are exploring maybe opening two or three or four more retail stores again as a complement so when you think about the overall over the next two to three years, we are bullish on the brand and we think we can get back the entire $300 million.

They were doing before they kept over at the beginning of last year, and we think that the our model of driving into TV and digital media will replace the physical stores and make the brand just as important to the customer and more profitable for our shareholders.

That's really helpful. Jim Thank you very much.

Thanks, Alex.

Thank you and ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Peterman for any final comments.

I would just like to thank everybody for the time this morning, and I look forward to sharing our results for Q tusa.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.